Integrated Generics, Inc. v. Bowen, CV 87-2032.
| Decision Date | 09 February 1988 |
| Docket Number | No. CV 87-2032.,CV 87-2032. |
| Citation | 678 F. Supp. 1004 |
| Parties | INTEGRATED GENERICS, INC., formerly known as Patient Medical Systems Corp., Plaintiff, v. Otis BOWEN, Defendant. |
| Court | U.S. District Court — Eastern District of New York |
David M. Werfel, Stony Brook, N.Y., for plaintiff.
Andrew J. Maloney, U.S. Atty. by Kevan Cleary, Asst. U.S. Atty., Brooklyn, N.Y., for defendant.
In this action plaintiff Integrated Generics, inc. ("Integrated Generics" or the "Company") challenges certain procedures allegedly adopted by companies charged with the responsibility of processing and paying certain Medicare claims. Plaintiff also alleges that the government has violated statutory, regulatory and constitutional mandates in the handling of the Company's Medicare claims. Declaratory and injunctive relief is sought prohibiting the defendants from continuing to carry out the allegedly illegal course of conduct. In addition, plaintiff seeks the payment of money that is allegedly being withheld pursuant to defendant's unlawful practice.
Named as defendants are the Secretary of Health and Human Services (the "Secretary"), the Director of Operations for the Health Care Financing Administration, the Medical Operations Coordinator for Empire Blue Shield of New York and a Special Agent of the Office of the Inspector General of the Department of Health and Human Services. Each defendant is named solely in his official capacity.
Presently before the Court is a motion filed on behalf of all defendants to dismiss the complaint for lack of subject matter jurisdiction. In the alternative, defendants seek a stay of this action pending the outcome of closely related grand jury proceedings. For the reasons that follow, the motion to dismiss is denied. Because the issues in this case are certainly closely related and, possibly, identical to those likely to be aired in the course of defendants' investigation of the plaintiff, this case is stayed pending the resolution of the grand jury investigation.
At issue here are procedures used in the administration of the Health Insurance for the Aged and Disabled Program, otherwise known as Medicare. 42 U.S.C. § 1395 et seq. The Medicare program is divided into two parts. Part A of the program deals with hospitalization benefits. 42 U.S.C. § 1395c-1395i. Part B, the part directly at issue in this lawsuit, is entitled "Supplementary Medical Insurance For Aged and Disabled" and covers, in general, expenses equal to 80% of the reasonable charges for services such as laboratory tests and x-rays. See 42 U.S.C. §§ 1395j-1395w.
To provide for the efficient and convenient administration of Part B benefits, Congress has authorized the Secretary to enter into contracts with companies, known as "carriers," to perform certain functions on behalf of the Secretary. 42 U.S.C. § 1395u. Carriers are authorized to, inter alia, determine the rates and amounts of payments made to providers of services, receive and account for funds in making payments to providers and audit the records of providers to ensure that proper payments are made. 42 U.S.C. § 1395u(a)(1).
Several regulations have been promulgated that are addressed to the proper procedures to be followed where fraud or overpayment in connection with the carrier/provider scheme is suspected or proven. Certain regulations provide for the temporary suspension of provider payments while others provide for the more extreme sanction of exclusion from participation in the Medicare program. These regulations allow for action to be taken either by carriers or by the Office of the Inspector General of the Department of Health and Human Services (the "OIG").
Those regulations governing action by the carrier give carriers the right to suspend payments where the carrier has reliable evidence of overpayment or fraud. See generally 42 C.F.R. § 405.370. Although the applicable regulations are addressed to the carrier's knowledge of suspected misconduct, they do not discuss the source of that knowledge. Thus the regulations do not preclude carrier suspension based on information obtained by the government and later communicated to the carrier.
Where payment is suspended due to suspected overpayment, the carrier must notify the provider of the intention to suspend payments and of the reasons for the suspension. Such notification must take place prior to the actual suspension. 42 C.F.R. § 405.371(a). After notification, the provider is given the opportunity to submit a statement and evidence showing why the suspension should not be put into effect. Id. In cases where the carrier has reliable evidence of provider fraud or misrepresentation (as opposed to overpayment) the aforementioned notice requirements do not apply. See 42 C.F.R. § 405.371(b). Instead, notice to a provider suspected of fraud or misrepresentation may follow the actual suspension of payments. Id.
Whatever the ground cited by the carrier in support of the decision to suspend payments, the suspension amounts to nothing more than a withholding of payments pending the outcome of an investigation. The provider is not precluded from participation in the Medicare program and claims continue to be processed and credited to the provider's account. If it is ultimately found that neither fraud nor overpayment exists, the withheld funds are turned over to the provider.
42 C.F.R. Part 1001 ("Part 1001") is addressed to actions taken by the OIG where there is evidence of provider fraud or abuse. See 42 C.F.R. § 1001.3. Pursuant to Part 1001, when the OIG determines that certain enumerated fraudulent activities have taken place, the OIG has the power to exclude or terminate a provider from participation in the Medicare program. See 42 C.F.R. § 1001.101(a); 42 C.F.R. § 1001.201. If the OIG intends to take such action, it must first comply with the procedures set forth in 42 C.F.R. § 1001.05. Essentially, this section provides that notice of, and the reasons for, the proposed exclusion be sent to the provider prior to the actual termination of benefits.
To summarize, the regulatory framework provides for notice to be given to a provider prior to the taking of action in cases where: (1) the carrier is suspending payment due to overpayment; or (2) the IOG is excluding or terminating a provider from participating in the Medicare program due to fraud or abuse. On the other hand, prior notice is not required where a carrier is suspending payment due to suspected fraud. Having outlined the relevant statutes and regulations, the Court turns to a discussion of the facts in the present case.
Integrated Generics is a company that, until April of 1986, was engaged in the business of providing durable medical equipment and disposable medical supplies to individuals benefiting from Part B of Medicare. Thus, Integrated Generics was a "provider of services" as that term is used in the Medicare statute. As a provider, the Company received payment for goods through the carrier system described above.
According to the complaint, in the summer of 1985 various carriers working with Integrated Generics began developing "inconsistent, ad hoc" filing instructions regarding the filing of claims. Pursuant to these conflicting instructions, claims were allegedly shifted among various carriers and many claims were not processed for a period of over two years. According to plaintiff, it was eventually agreed that all of Integrated Generics' claims would be processed by Empire Blue Shield of New York ("Empire").
In a letter dated May 8, 1987, Empire advised plaintiff's predecessor corporation that Empire was withholding plaintiff's assigned payments. The May 8 letter stated that payments were being withheld pursuant to those regulations governing the carrier's temporary suspension of payment where there is evidence of fraud, i.e., 42 C.F.R. § 405.371(b). The letter further stated that the decision to withhold payments was made on the basis of notice of an investigation received from the Office of the Inspector General of the Department of Health and Human Services. The reason cited for the suspension of payments was that it was Empire's understanding that the OIG was investigating the issue of "whether claims have been submitted to inappropriate jurisdictions in order to obtain higher rates of reimbursement for seatlift chairs."
As noted above, plaintiff's complaint seeks to challenge, inter alia, defendants' regulations for the filing of Part B claims. Since the May 8 letter mentioned that claims may have been submitted to inappropriate jurisdictions, plaintiff has been able to tie the government's withholding of payments to plaintiff's allegations about the filing instructions. Essentially, plaintiff's complaint asserts that the OIG's investigation was triggered by plaintiff's inability to comply with the allegedly confusing filing instructions. This lawsuit was thus initiated to determine the validity of the filing instructions and to thereby establish plaintiff's right to the withheld payments.
In addition to seeking the immediate payment of all withheld payments, plaintiff seeks to have this Court hold that defendants' implementation of the filing instructions and defendants failure to give plaintiff notice of the suspension of payments prior to the actual withholding of funds, violates defendants' regulations, the Administrative Procedure Act, the Freedom of Information Act and the Constitution.
The motion to dismiss the complaint is predicated on an alleged lack of subject matter jurisdiction. Defendants take the position that plaintiff's complaint is...
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